Types of Mortgage

A fixed rate mortgage is one where for a period of time, the interest rate is set (fixed) and will not be affected by changes in interest rates. At the end of the fixed period, the interest rate will change to the lenders variable rate applicable at the time. Usually the rate can be fixed between 2 and 5 years, although longer periods are available.

Advantages

•  Provides a guarantee that your mortgage payments are fixed for the duration of the fixed term, and giving a protection against rising interest rates 

Disadvantages

•  If you redeem your mortgage during the fixed period, and sometimes for a period afterwards, you may be liable to an early redemption charge.
• If interest rates fall below your fixed rate, you will be left paying a higher rate than the variable rate.

These mortgages are a variation of a Variable Rate mortgage. They guarantee to be a certain percentage in excess of the Bank of England base rate in the case of Tracker Rate mortgages, or the London Interbank Ordinary Rate, known as LIBOR (which is the interest rate that the Bank of England lends to commercial banks).

So as the Bank of England or LIBOR rate change, the Tracker rate or LIBOR rate does by the same amount.

At present the Bank of England base rate is 0.5%, so if you have a Tracker rate guaranteed to be 3% greater, then you would pay 3.5%, if the Base rate were to increase by 1% to 1.5%, then your rate would increase to 4.5%.

Advantages

• The interest rate you pay moves immediately that the base rate changes.
• You are guaranteed the percentage rate that your loan will exceed the Base rate by. This prevents you from your lender becoming uncompetitive with their existing borrowers standard variable rate.

Disadvantages

• When rates rise, you are subject to the increase immediately.

A discounted rate gives you a guarantee that for a period of time, your interest rate will be at a fixed percentage below the variable rate. eg: If the current rate is 5% and your rate is discounted by 2%, you pay 3%, however, if the variable rate increased by 0.5%, your rate would increase to 3.5%.

Advantages

• Gives a reduced repayment over the period of the discount
• Repayments will reduce if interest rates fall.

Disadvantages

• An early redemption fee penalty is payable if you redeem your mortgage within the discounted period.
• Repayments will increase if interest rates rise.

Capped Rate mortgages guarantee a maximum amount that you would have to pay. Your payments may go up or down under that amount, as interest rates increase or decrease, but you would not have to pay more even if the interest rates rise higher.

Collared Mortgages

Collared mortgages are usually found in combination with a Capped or Tracker mortgage, it means there is a set lower level (The 'Collar'), so your payments would never fall below that level.

Flexible or Current Account mortgages group together all your borrowing and savings into one account, this means that all of your borrowings are at the mortgage rate, which can be considerably less than personal loan and credit card rates.

Usually you have your savings held in this type of mortgage and your salary paid into it. This means that as interest is calculated daily, you will only pay interest on the actual amount you owe.

Advantages

• Interest calculated on a daily basis.
• Overpayments can be made without penalty, this will reduce your mortgage term and the amount of total interest payable.
• Underpayments or payment holidays are useful in times of hardship.
• Pool together all savings and borrowings.

Disadvantages

• These mortgages need to be managed carefully to take advantage of the benefits, and to make sure they are repaid at the end of the loan period.
• This type of mortgage could encourage people to over stretch themselves on their borrowings.
• Interest rates are not as competitive than some Fixed / Tracker products.

You can choose how we are paid for mortgages. We can accept commission from the lender in which no fee would be payable. However if you want to pay for our services by paying a fee, then a charge of 0.5% of the loan will apply.